Wal-Mart Puts A Damper On Retail, Consumer ETFs

Includes: WMT, XLP, XLY
by: Tom Lydon

Wal-Mart (NYSE:WMT) reports quarterly earnings later this week, but analysts are not upbeat after an internal email warned of slowing sales. February has been one of the most unimpressive months for sales with this retailer and focused exchange traded funds could fall out of favor.

"In case you haven't seen a sales report these days, February month-to-date (MTD) sales are a total disaster. The worst start to a month I have seen in my ~7 years with the company," Jerry Murray, Vice President of finance and logistics for Wal-Mart, said in a story that Bloomberg News broke.

The watered down sales estimates for the first quarter trail fourth quarter earnings that, on average, beat earnings estimates, according to FactSet Research. Of the 386 consumer focused companies that reported 4Q earnings, 81% of consumer staples beat analysts expectations however, for 1Q 2013, earnings for the entire S&P 500 are down 0.04%.

SPDR Consumer Staples Select Sector (NYSEARCA:XLP) and the Consumer Discretionary Select Sector (NYSEARCA:XLY) have risen about 7% year-to-date since the start of 2013. Together, the two ETFs account for about 22% of the S&P 500 equity index.

Negative trends that have impacted consumer spending include the higher payroll taxes that took effect January 1, 2013. Wal-Mart analysts say for a family earning $50,000, this can equal a shopping cart of groceries per month, reports ETF Guide. Furthermore, the recent rise in gas prices is not giving consumers a break.

The general attitude of investors has been more upbeat, causing a "risk-on" attitude, possibly contributing to less interest in consumer stocks and ETFs. Investors will be looking forward to the Wal-Mart earnings that are expected Thursday.

SPDR Consumer Staples Select Sector

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Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.